GNYADA 2019 Membership Directory & Services Guide

In December 2017, the Department of Defense released guidance clarifying that whether a transaction qualifies for the purchase-money exceptions described above depends upon “what the credit beyond the purchase price of the motor vehicle or personal property is used to finance.” More specifically, “financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transaction from the exceptions.”The Department of Defense failed to define the term“credit- related cost,” but provided two examples: Guaranteed Auto Protection insurance and credit insurance. Various trade associations immediately petitioned the Department of Defense to withdraw its guidance, in particular, due to its retroactive effect. Efforts remain ongoing at this time. Under the MLA, a “covered borrower” is a consumer, who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent of a covered member. A “covered member” includes members of the armed forces on active duty or on active Guard and Reserve Duty, and their dependents. Dependents can include the spouse, in some cases a child, parent or parent-in-law, or an unmarried person in the legal custody of the military member. The MLA provides various protections for “covered borrowers.” Those protections fall into two main categories: (1) a 36% Military Annual Percentage Rate (MAPR) cap, and (2) “other MLA terms and conditions,” including oral and written disclosure requirements and certain specified prohibitions and limitations, such as a prohibition against using the title of a vehicle as security for the consumer credit obligation. The MAPR is an all-inclusive APR that eliminates some prior “finance charge” exceptions under Regulation Z. For example, the MAPR calculation must include (a) fees/ premiums charged for voluntary credit insurance, debt cancellation contracts, and debt suspension agreements, and (b) fees for any ancillary products sold in connection with the consumer credit. In order to ensure that the terms of any consumer credit transactions entered into with covered borrowers meet the requirements of the MLA, the creditor must determine the covered borrower status of every applicant for consumer credit. Though the creditor is not required to use a specific method to determine covered borrower status, the MLA Regulations do allow a safe harbor for covered borrower status determinations. In order to obtain the safe harbor, creditors must either (1) directly or indirectly (perhaps through a service provider) verify the consumer’s covered borrower status through the MLA database, or (2) verify the consumer’s covered borrower status by using a consumer report obtained from a nationwide consumer reporting agency that has a statement, code, or indicator (if any) concerning the consumer’s covered borrower status. Doing so, and keeping a record of the findings, provides a safe harbor from liability under the MLA’s terms in such status determinations. Violators of the MLA Regulations are subject to draconian penalties, including $500 per violation in actual damages, in addition to punitive damages, equitable or declaratory relief, court costs, and attorney’s fees. Knowing violations are treated as misdemeanors, which can lead to fines or imprisonment. Also, violating contracts are void from the inception of the contract (that is, the creditor cannot collect any principal or interest). You should seek advice of counsel to determine whether the MLA applies to your transactions. BCFP Small Dollar Rule Effect on Auto Lending On October 5, 2017, the Bureau of Consumer Financial Protection (BCFP) issued its final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Small Dollar Rule” or “Rule”). Although the Small Dollar Rule is targeted at short-term, high-interest rate loans (e.g., payday loans), the Rule has potential consequences for the auto financing industry. In January 2018, the BCFP announced that it intended to reconsider the Rule, and in June 2018, the BCFP indicated that it expects to issue a notice of proposed rulemaking by February 2019.

2019 membership directory & services guide / hot topics PG 211